Are you a business owner or key stakeholder? Business succession planning and estate planning is essential as a business owner. It helps to protect the business you have built and invested in.
Business succession planning means having up-to-date plans in place to ensure that your business can continue when you are gone. While estate planning for business owners is the ongoing process of managing your personal estate with your business affairs in mind.
Business estate planning is an ongoing process as your business is constantly growing and evolving.
Effectively Regulate your Business Succession and Estate Planning
At its core, business succession and estate planning involves two main aspects –
1. Consulting with specialist professionals in estate planning to put the right structures in place so that your business and estate is protected year on year and after you are gone.
2. Having access to current and updated information. The Marsh Fidelity App helps with this.
Above all else – you need to have a current well-written will in place if you are a business owner. Having a valid will is essential to an effective estate plan but it is not enough to protect your business and estate.
Having a business letter of wishes helps you to manage your business estate planning. This letter sets out your wishes for how you would like your business to be run when you pass away. It also includes the key information for day to day running of the business and your business succession plan.
It is important to write a short passage on the purpose or mission of the business and what your goals are for the long term.
Make a list of all the key parties and contacts involved in your business. Then make suggested appointments of who you would like to manage and run the business when you are gone. List their specific scope of work and the various roles of the current key members.
For example, who will be the managing director and accountant on your passing. If it is a family business, what roles you wish to see different family members play in your business going forward.
Remember that access to information is an act of kindness. Especially in estate planning.
Be Aware of the exposure to Danger in Your Business
- Loan Accounts – Be mindful of your business loan accounts because if your business owes you money. This becomes due to your estate when you pass away and can resulting in estate duty liability. To add it can also create a liquidity issue in your estate. Remember interest free loans can also be seen as a deemed donation and could have donations tax consequences. This sort of planning requires special attention. Having a fiduciary professionals eye casted on your business can save you a lot of time and money down the road.
- Sole Traders – A major risk associated with sole traders is that their assets are often intermingled with the deceased’s own assets. The business does not have a separate legal standing. For example, if the deceased ran a panel beater shop from his home, it can be difficult to define what the business assets are and which his personal assets are. As another example, if he leaves his business to his son, and his tools to his nephew, you can see the immediate uncertainty. An executor must act over all of the assets of a sole proprietor as they fall into his personal estate. This means that his bank accounts will be closed as they are in his personal name, even though they may relate to his business.
- Partnerships – The key issue is that when a partner dies. The partnership is dissolved and you need to look to the partnership agreement or historical financial accounts to determine rights to assets and undistributed profits. As the partners are jointly and severally liable for debts. Meeting the remaining partners and finding a way forward is important to achieve as soon as possible after a partner’s death. In this case, getting the deceased’s estate released from security can be difficult.
- Close Corporations & Private Companies – These types of businesses are different as the business entity continues to run if a member, director or shareholder passes away. They do not cease to exist as a result of the death of the member. So whilst the business can continue in terms of its existing structures and management. You may need to get the estate released from surety from a bank. It is common in small businesses for the deceased to have guaranteed the business by way of a suretyship agreement. If the business is in trouble, the bank can claim against the deceased in terms of the suretyship given. This can significantly impact on his personal estate. It is important to be aware that even a member with a small share of a close corporation can bind the business.
How Do I Ensure My Business and Estate are Protected?
- Get a business succession plan in place and estate planning advice from a professional who specializes in these fields. Ensure that it is regularly reviewed and updated.
- Valuations of businesses should be approved by SARS to give the family peace of mind.
- Look at buy-and-sell and key-person policies. This is important if there are multiple business owners.
- Look at assigning a percentage of a life policy to your business if you have a large loan account.
- Have legal or professional indemnity insurance for your business.
Conclusion and Call to Action
If you would like to find out more about our Business Letter of Wishes template.
Get further advice regarding business succession and estate planning, contact us today at [email protected] or visit our website at https://marshfidelity.co.za for assistance.